Yahoo And Microsoft Crawling Closer To Search Deal

The team from Redmond is in the Valley right now, in fact, Kara Swisher says, and they're talking "how," not "if."

[M]any sources close to the situation on both sides said that the pair are coming ever closer to a search and advertising partnership deal.

Said one source: “It’s closer than it has ever been…"

“It’s meaningful,” added another source. “The fact that there is even progress and engagement, after so many failed attempts between us, says a lot.”

The good news is that the deal sounds cleaner and more coherent this time: Yahoo would focus on media and sell search and advertising, Microsoft would build the search and display-ad serving technology.

That's a deal that could work for both parties. The key for Yahoo is that it be able to fire Microsoft if Microsoft falls down on the job. As long as Yahoo can wave the threat of defecting to Google/DoubleClick over Microsoft's head, this would just be an outsourced technology deal, and Yahoo wouldn't be mortgaging its whole future for a couple of years of stronger earnings.

Who's doing the negotiating?

Both sides are using very small teams to discuss that possible partnership, mostly in Silicon Valley. Some of the Redmond, Wa.-based Microsoft team, in fact, is in the Bay area now.

Sources said those involved on the Microsoft side include: Digital head Qi Lu, a former Yahoo tech star; top M&A and strategy exec Charles Songhurst; Online Audience Business SVP Yusuf Mehdi; and several others.

On the Yahoo side: North America EVP Hilary Schneider, who leads the efforts; General Counsel Michael Callahan; top Yahoo ad operations techie Mark Morrissey, who was key to its revival of the Panama ad system and has recently been leading product development on its new ad platform; Finance SVP and Chief Treasury Officer Mike Gupta; and Products EVP and CTO Ari Balogh, although he is more in the background.